Glossary of Terms

Corporate Recovery and Insolvency uses many technical terms and here is a brief explanation of some of the more common terms you may come across.  Please note that this glossary is for general guidance purposes only.

Administration

The name of the process following the making of an Administration Order by a court.  The Administration Order is usually applied for by the directors of an insolvent company, the company itself or a creditor.  This is a court procedure that places the company under the control of a Licensed Insolvency Practitioner and the protection of the court to achieve one or more specific purposes.  The aim is to save the company or business or achieve a better result for creditors than in liquidation.  Any creditor with a Floating Charge must also be given the opportunity to decide whether to appoint an Administrative Receiver or their own Administrator before the order is made.  If an Administration Order is made by the court, the company will be placed under the day-to-day control and management of an Administrator and is protected from creditors.

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Administration Order

An order made by the court which gives protection to a company from its creditors or any other parties making legal claims against it.  Only with the permission of the court or the appointed Administrator may such actions be continued.  The Administration Order can be applied for by the directors of a company, the company itself or a creditor.  When the Administration Order is made the company is then managed by the Administrator who will try to save the company or the business or achieve a better result for creditors than Liquidation.

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Administrative Receiver

A Licensed Insolvency Practitioner appointed by the holder of a Floating Charge Debenture created before 15 September 2003, covering the whole, or substantially the whole, of a company’s property.  An Administrative Receiver can carry on the company’s business and sell the business and other assets to repay Secured Creditors and Preferential Creditors.

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Administrative Receivership

An insolvency process following the appointment of an Administrative Receiver by a bank or other lender, which holds the majority of a company’s assets as security against lending under a Floating Charge Debenture created before 15 September 2003.

The Administrative Receiver can continue to operate the business, and often does, whilst trying to sell it as a Going Concern.  A higher price is usually achieved from the sale of the assets than if the company’s assets are disposed of piecemeal.  The purchaser acquires the business free of debt and the money received is distributed to creditors in the order of their security and statutory order of priority.

An Administrative Receiver has no authority to deal with the claims of Unsecured Creditors.  If sufficient funds become available for distribution to the general body of creditors they are dealt with by a Liquidator appointed separately.  Administrative Receivers cannot be appointed in respect of Debentures dated after 15th September 2003.

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Administrator

A Licensed Insolvency Practitioner appointed where an Administration Order has been made and who takes control of the affairs of an insolvent company with the purpose of achieving the objective(s) set out in the Administration Order.

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Bankrupt

An individual who is subject to a Bankruptcy Order granted by the court.  The order demonstrates that the Bankrupt is unable to pay his or her debts and any property that existed at the time the Bankruptcy Order was made, vests in the Trustee to be realised for the benefit of the Bankrupt’s creditors.

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Bankruptcy

Following the making of a Bankruptcy Order by the court, the assets of the Bankrupt immediately fall under the control of a Trustee.  At the start of the process the Official Receiver administers the bankruptcy estate but in certain circumstances, a Licensed Insolvency Practitioner can be appointed as the Trustee, normally based on the wishes of the majority of creditors.

 Any capital held in the form of property, including a house, must be realised.  The law does, however, allow a period of 12 months for the Bankrupt’s family to make alternative arrangements, before it will order the property to be sold.  The Bankrupt is usually allowed to keep furniture and other basic domestic requirements and in certain circumstances a low value car.

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Bankruptcy Order

An order of the court to declare an individual bankrupt, following the petition of a creditor, the debtor or a Supervisor of a failed Individual Voluntary Arrangement on the grounds of insolvency or by the Secretary of State for Business, Innovation and Skills.

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Company Voluntary Arrangement (CVA)

A legal agreement between an insolvent company and its creditors which sets out how a company is going to repay the money it owes, how much it will repay and over what period.  A Company Voluntary Arrangement can include the planning of a corporate reorganisation involving delayed or reduced payments of debt, capital restructuring or an orderly disposal of assets.  A proposal for a Company Voluntary Arrangement is presented to creditors and shareholders at creditors’ and shareholders’ meetings by its directors having been assisted by a Nominee.  There is limited court involvement and the scheme is supervised by a Supervisor.

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Compulsory Liquidation

Also called a compulsory winding-up, a Compulsory Liquidation is a Liquidation of a company when a court grants a Winding-up Order.  The process commences by the presentation to a court of a Winding-up Petition usually by a creditor who has not been paid money it is owed by the company.  The Winding-up Petition can also be presented by the company, its director(s) or its shareholder(s).  A Winding-up Petition can also be presented by the Secretary of State for Business, Innovation and Skills on the grounds of public interest.

The court initially refers the case to the Official Receiver.  If the assets are likely to cover the administrative costs, the Official Receiver calls a creditors’ meeting to appoint a Liquidator other than him or herself, otherwise he or she will remain in office.  In some cases the Department of Business, Innovation and Skills may use its power to appoint a Liquidator as soon as the Winding-up Order is made.  In any event, the Official Receiver retains responsibility for investigating the conduct of directors and other officers.

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Creditors' Voluntary Liquidation (CVL)

This is a process which is used when a company is insolvent and the directors have recognised that the company should cease to trade.  It is a director led process, with the directors commencing the process by convening a meeting of shareholders to place the company into Liquidation voluntarily.

At the shareholders’ meeting, the shareholders pass a Special Resolution for the company to enter into Creditors’ Voluntary Liquidation and a Licensed Insolvency Practitioner is appointed as the Liquidator.  A meeting of the company’s creditors must be held within 14 days of the shareholders’ meeting, although in practice both meetings are normally held on the same day.

Once the company is in Creditors’ Voluntary Liquidation, the powers of the directors cease and control of the company is passed to the Liquidator.

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Debenture

This is a document setting out the terms of a loan, usually to a company.  A debenture may be secured on part or all of a company’s assets and often comprises of a Fixed Charge a Floating Charge or a combination of both.  The lender is referred to as the debenture holder and is a Secured Creditor.

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Fixed Charge

This is a form of security granted over specific assets, preventing a company or an individual from dealing with those assets without the consent of the Secured Creditor.  It gives the Secured Creditor a first claim to the proceeds of sale of the assets over which the charge falls and the creditor can usually appoint a Receiver to realise the assets in the event of default.  A Fixed Charge holder will rank before Floating Charge creditors, Preferential Creditors and Unsecured Creditors.

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Floating Charge

This is a form of security over general assets of a company which can change from time to time as part of the normal activity of a business.  The company continues to use the assets until a default event occurs.  If this happens, the holder of a Floating Charge will usually appoint an Administrative Receiver or an Administrator (depending on the date of the charge) to realise the assets of the company to recover the debt.  A Floating Charge holder will rank for dividend purposes after the holder of a Fixed Charge and Preferential Creditors but before Unsecured Creditors.

Depending on the date on which the Floating Charge was created, there may be a need to calculate an amount that is known as the Prescribed Part.  This is a calculated value based upon asset realisations that by-pass the Floating Charge holder and is available to Unsecured Creditors.

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Going Concern

The basis on which a Licensed Insolvency Practitioner will attempt to sell a business out of an insolvency process.  Effectively it means the business continues, jobs are saved, and a higher price is usually achieved.

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Individual Voluntary Arrangement (IVA)

A legal agreement between an individual and their creditors which sets out how the individual is going to repay the money he or she owes, how much will be repaid and over what period.  An Individual Voluntary Arrangement will always demonstrate that creditors will receive an enhanced return compared with the individual entering into bankruptcy proceedings.

An Individual Voluntary Arrangement is an extremely flexible procedure and can be proposed by individuals who are already subject to bankruptcy proceedings.  A proposal for an Individual Voluntary Arrangement is prepared by the individual with the assistance of a Nominee and is presented to creditors at a creditors meeting for approval.  Once the Individual Voluntary Arrangement is approved, it is monitored by a Supervisor.

An Individual Voluntary Arrangement enables the individual to go about their daily business in a less restricted manner than under Bankruptcy.

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Licensed Insolvency Practitioner

A person licensed by one of the Recognised Professional Bodies who are authorised by the Department of Business, Innovation and Skills.  Only a Licensed Insolvency Practitioner can be appointed to act in insolvency proceedings.

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Liquidation

The name of the process by which a company is brought to an end.  There are three types of Liquidation; Compulsory Liquidation, Members' Voluntary Liquidation and Creditors' Voluntary Liquidation.

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Liquidator

A Licensed Insolvency Practitioner appointed to wind-up a company.

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Members' Voluntary Liquidation (MVL)

A procedure for winding up a company which is solvent, i.e. that the company has sufficient assets to repay all known creditors in full, together with statutory interest within 12 months of the commencement of the Liquidation.   Reasons for winding up a solvent company include:

  • providing an exit route for private company shareholders to enable them to realise their investment
  • where a company is dormant or its purposes have been fulfilled as part of a reorganisation scheme.

The procedure requires a Statutory Declaration of Solvency to be completed by the company directors.  The Liquidation commences when the shareholders pass a special resolution at a shareholders’ meeting.  Although the Members’ Voluntary Liquidation procedure is only available for solvent companies, the law requires that the Liquidator is a Licensed Insolvency Practitioner.

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Mortgage

This is a legal document by which an owner of property transfers an interest in that property to a lender to secure the repayment of a debt.  The lender is a Secured Creditor.

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Nominee

A Licensed Insolvency Practitioner appointed by a company or an individual to formally advise the directors of a company or an individual during the period leading up to the holding of the creditors’ meeting to approve the terms for a Company Voluntary Arrangement or an Individual Voluntary Arrangement.

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Official Receiver

An officer of the court who is a civil servant and an officer of The Insolvency Service, an executive agency of the Department of Business, Innovation and Skills.

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Preferential Creditor

A class of creditor who benefits from a statutory priority over creditors holding a Floating Charge and Unsecured Creditors.  Preferential Creditors consist predominantly of employees’ claims for arrears of wages, accrued holiday pay and in some circumstances, unpaid pension contributions.  There are limits that apply to the amount of money an employee can claim preferentially, with any balance forming an unsecured claim against the company or an individual.

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Prescribed Part

The Prescribed Part was introduced by section 176A of The Insolvency Act 1986 (as amended) and is a share of the assets of a company subject to a Qualifying Floating Charge which is reserved for distribution to Unsecured Creditors in priority to a Qualifying Floating Charge creditor in an Administration or Liquidation.

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Qualifying Floating Charge

A Floating Charge is a Qualifying Floating Charge if it is expressed to be one, or if the security document purports to give the holder power to appoint an Administrator or Administrative Receiver and which relates to the whole or substantially the whole of the company’s property

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Receiver

An individual appointed by a Secured Creditor under the terms of a Mortgage or Debenture in respect of specific assets of a company.  A Receiver need not be a Licensed Insolvency Practitioner.

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Secured Creditor

A class of creditor who benefits from holding security over part or all of a company’s or individual’s assets.

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Supervisor

A Licensed Insolvency Practitioner appointed by creditors in either a Company Voluntary Arrangement or an Individual Voluntary Arrangement to implement the terms of the Arrangement as approved by creditors.

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Trustee

A Licensed Insolvency Practitioner appointed to administer the estate of a Bankrupt.

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Unsecured Creditor

A class of creditor who does not hold security and who has no preferential rights.  An unsecured creditor ranks below Secured Creditors and Preferential Creditors, with the exception of when the Prescribed Part is applicable.

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Winding-up Order

This is an order made by the court for a company to be placed in Compulsory Liquidation.

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Winding-up Petition

A winding-up petition is a petition presented to the court seeking an order that a company be put into Compulsory Liquidation by the court making a Winding-up Order.

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